 "Canadian pension firm buys 49% in RInfra's Mumbai power biz for Rs 3,500 cr")
Reliance Infrastructure will spin off and sell 49 per cent stake in its Mumbai power business to a Canadian pension fund for Rs 3,500 crore.
The Anil Dhirubhai Ambani-controlled Reliance Infrastructure on Monday entered into a non-binding term sheet with PSP Investments, a Canada-based public sector pension investment manager, for the acquisition of 49 per cent equity stake in the integrated power generation, transmission, distribution and trading business in the city of Mumbai and adjoining areas.
Reliance Infra will separate this business on a going-concern basis into a special purpose vehicle (SPV), in which it will own the controlling 51 per cent stake, and PSP Investments will have a 49 per cent stake. PSP Investments had assets under management of Canadian dollar 112 billion at the end of March 2015.
The SPV will be named Reliance Energy. The enterprise value of Reliance Energy is pegged at approximately Rs 15,000 crore. Of Reliance Infra’s total debt of Rs 16,800 crore, around Rs 8,000 crore will be transferred to Reliance Energy.
With Monday’s deal, Reliance Infra will receive fresh funds to the tune of Rs 3,500 crore, which it plans to use to repay debt. Analysts expect Reliance Infra’s debt to be reduced by about 70 per cent to Rs 5,000 crore. The transaction is expected to be complete by March. Reliance Infra’s shares on Monday closed at Rs 417.05, up 5.84 per cent.
Reliance Infra’s Mumbai power business distributes power to nearly three million residential, industrial and commercial consumers in the suburbs of Mumbai, covering an area of 400 sq km, and catering to a peak demand of 1,800 MW, with revenue of Rs 7,700 crore in 2014-15.
“The parties have entered into an exclusivity agreement valid till March 31. The proposed transaction is subject to due-diligence, definitive documentation, applicable regulatory and other approvals, and certain other conditions. Accordingly, there can be no certainty that a transaction will result. Further announcements will be made at an appropriate stage,” the company said in its release.
Today's agreement comes after Reliance Infra's decision at its November 4 board meeting to sell its 5.6 million tonnes per annum cement business and related assets. The company has shortlisted seven potential buyers from 15 bidders which had submitted preliminary expressions of interest. The due diligence process has commenced.
Reliance Infra had also taken a decision to exit the roads business where it has invested Rs 8,800 crore. In roads, it has 11 revenue-generating projects of about 1,000 km in seven states. The company has initiated a formal process and has attracted preliminary interest from strategic and portfolio investors in India and overseas.
The company has said that it wants to focus on the defence sector, which will be the primary driver of its future growth.
DEAL MATRIX
Rs 15,000 cr approximate enterprise value of Reliance Energy (SPV)
Rs 8,000 cr of debt to move to Reliance Energy
70% of Reliance Infra’s debt to reduce from Rs 16,000 cr to Rs 5,000 cr
51% stake to be held by Reliance Infra and management control in Reliance Energy to be retained
March 2016: Transaction expected to be completed by then
3 million consumers in Mumbai are supplied power by Reliance Infra
